This Weblog is a series of lessons and articles in fiqh according to the school of Abu Hanifah. They are not necessarily published in the order that they should be read.

Monday, January 10, 2005

Introduction to buying and selling transactions

One of the greatest ways to worship Allah is to make sure that one's trading transactions are islamically sound. This is because it requires struggling hard against one's natural desires, and because it is mentioned in hadith that the honest tradesperson dies a martyr. It has been said that the meaning of renouncement of this world, is to ensure that all one's income is permitted.

On the on other hand, one of the fastest ways to drown in sin, is to engage in transactions without having studied what Islam says about them. A saying has been narrated from Umar which means that "noone trades in our markets, unless he is understands how to do transactions soundly. Otherwise he will commit ribaa." From this we know that sound business dealings is something that must be learned, especially because the linguistic meaning of "riba" in Arabic is "addition", and there is not doubt that some types of addition in transactions are allowed, such as profit.

Definition of the sales transaction

A sale in Islam is defined as exchanging something desired for something desired. A sales transaction has happened if this definition is met. The exchange can be either physical or by a verbal contract. The latter happens when the affirmation of the option to buy or sell is followed by the counterpart's acceptance while the option remains.

Kinds of Sales Transactions

There are several kinds of sales transactions and they can be divided according to several criteria.

Kinds according to their Islamic judgement:

Correct. This one meets all conditions for the transaction to be without any sin.

Contingent. This transaction is valid, but contigent upon som later event to take effect, such as someone's approval.

Corrupt. This transaction is a sale in that it meets its definition, but an islamically forbidden element is related to the contract.

Invalid. This transaction is not a sale at all because its definition was not met.

Kinds according to what is bought and sold:

Object for object, or barter.

Object for debt. This means selling an object for a price. The price can be absolute, i.e. gold, silver or going currency. The price could also be relative; sold by weight or volume, or by unit count and is of consistent quality.

Debt for object, or "salam" in Arabic. In this, the buyer pays for something that the seller does not yet possess.

Debt for debt, or "sarf" in Arabic. This is the trade of currencies, gold and silver.

Kinds according to the purchase and sales price:

The most common is the haggler's price. This is the price that the two parties agree upon without regard to the purchase price of the seller.

However, sometimes there is an agreed relation between the two prices. These kinds of relationships are 4:

Al-Wadhii^ah: The price is set lower than the original price by a certain amount.